Royal Bank of Scotland (RBS) will have to undergo an independent skilled person review of its lending practices following allegations that it put some good and viable businesses into default so it could boost profits.
The review - also known as a section 166 after the part of the Financial Services and Markets Act (FSMA) to which it refers - will look into the banks treatment of customers in financial difficulty.
The decision by the Financial Conduct Authority (FCA) to launch an independent probe follows reports published this week by Sir Andrew Large into lending practices at RBS and, separately, by Dr Lawrence Tomlinson into banks' treatment of customers having financial problems.
Tomlinson's report is focused on the bank's Global Restructuring Group lending division, which manages 'risky' loans.
Earlier this week Tomlinson told the BBC: "The treatment that some of these companies have had is horrendous."
Evidence of RBS' treatment of small businesses has also been passed to financial regulators by business secretary Vince Cable, according to reports.
In a statement, the FCA said that while commercial lending is not a regulated activity under FSMA 2000, "nevertheless, the allegations in these reports gave the FCA concerns as to whether RBS has treated customers appropriately, in particular those in financial difficulties".
It continued: "If substantiated, such allegations may also indicate wider concerns in relation to governance and culture within RBS. The FCA expects firms to act with integrity across all of their activities."
If the findings from the 166 review reveal issues which come within the FCA's remit, the FCA will consider further regulatory measures.
Separately, the regulator is writing to all other relevant banks seeking confirmation that they are satisfied they do not engage in any of the poor practices alleged in the reports.
FCA director of supervision Clive Adamson said: "These allegations, if proved, raise serious concerns about how banks' treat their customers.
"An SME's relationship with its bank is essential for any business to have a chance to succeed, and claims like the ones made threaten to undermine that. We expect all firms to act with integrity and put customers at the heart of their business."
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